Investor Day London Thursday, 7 November 2013 Gavin Slark Chief - - PowerPoint PPT Presentation

Grafton Group plc Investor Day

London Thursday, 7 November 2013

Gavin Slark Chief Executive Officer

Cautionary Statement Certain statements made in this presentation are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by these forward looking statements. They appear in a number of places throughout this presentation and include statements regarding the intentions, beliefs or current expectations of Directors and senior management concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses operated by the Group. The Directors and senior management do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Agenda

• Welcome and Overview
• Strategic Financial Overview
• Irish Merchanting
• Selco
• Development Strategy
• Summary
• Questions and Answers

Lunch with Management Team Gavin Slark, Group CEO David Arnold, Group CFO Eddie Kelly, CEO Grafton Merchanting ROI Chris Cunliffe, CEO Selco Video presentation Joe Sowton, Group Strategic Development Director Gavin Slark Gavin Slark, David Arnold

Executive Management Team

Peter Kearney CEO Grafton Merchanting NI

Gavin Slark CEO

David Arnold Group CFO Charles Rinn Group Financial Controller/ Secretary Jonathan Jennings Group Property Director Eddie Kelly CEO Grafton Merchanting ROI Mark Kelly CEO Grafton Merchanting GB Chris Cunliffe Chief Executive Selco Declan Ronayne Chief Executive Woodie’s DIY Jolyon Ingham Group IT Director Joe Sowton Group Strategic Development Director

Management Team in attendance

Steve Thompstone Managing Director Buildbase Andy Williams Managing Director Plumbase Kate Tinsley Finance Director Grafton Merchanting GB Peter Kearney Chief Executive Grafton Merchanting NI Declan Ronayne Chief Executive Woodie’s DIY Charles Rinn Group Financial Controller / Secretary Chris Cunliffe Chief Executive Selco

Joe Sowton Group Strategic Development Director

Eddie Kelly CEO Grafton Merchanting ROI

Larry Dale Chief Executive EuroMix

1909 - 2013

• 1909

Established in Dublin

• 1965

PLC - Listed on Dublin Stock exchange

• 1985

Michael Chadwick appointed Executive Chairman

• 1990

Northern Ireland – Builders Merchanting

• 1994

England – Plumbers Merchanting

• 1995

England – Builders Merchanting

• 1998

British Dredging plc

• 2003

Jacksons

• 2005

Heiton Group plc

• 2006

Online retail - Plumbworld

• 2009

Belgium – Joint Venture

• 2011

Appointment of Gavin Slark as CEO

• 2013

Change of Listing Arrangements and Reporting Currency

Existing Group structure

Grafton Group plc Ireland UK Belgium

JV Builders Merchanting JV Manufacturing Merchanting DIY Retailing Builders Merchanting Plumbers Merchanting Mortar Manufacturing

Our current market positions

• Builders Merchanting

UK No 3 ROI No 1 Belgium No 3 (No 1 - 2014)

• Plumbers Merchanting

UK No 4 ROI No 1

• DIY Retailing

ROI No 1

• Dry Mortar Manufacturing

UK No 1

2012 revenue by business segment and geography

Revenue by Geographic Area Revenue by Business Segment

€2.17bn €2.17bn

Manufacturing 2% Retailing

9%

UK 76% Ireland 22% Belgium 2% Merchanting 89%

£1.76bn £1.76bn

Group trading locations

UK ROI BE Total 260 43 11 314 227 4

• 231
• 45
• 45

9 1

• 10

Total 496 93 11 600 Circa 600 Trading Locations Builders Merchanting Plumbers Merchanting DIY Retailing Manufacturing

David Arnold Chief Financial Officer

Interim Management Statement

*Constant currency

Average Daily Like for Like Revenue Growth – 2013* Total Revenue Q1 Q2 Four months to 31 October 2013 Ten months to 31 October 2013* UK Merchanting (0.6%) 4.2% 4.1% 6.2% Irish Merchanting 2.4% (0.6%) 5.6% 1.1% Irish Retailing (12.3%) 8.5% 4.1% (1.7%) Manufacturing (10.3%) 8.0% 25.5% 0.7%

Revenue for the 10 months to 31 October was up 7.4% to £1.6 bn (Oct 2012: £1.49bn)

UK

• Housing market is benefitting from Government backed initiatives
• Confidence slowly but surely returning
• Positive, though lagged, effect on Grafton as housing transactions and household

spending on RMI increases Ireland

• Consumer confidence has improved and the Merchanting and DIY markets have

stabilised at very low levels of activity

Interim Management Statement

Revenue

500 1,000 1,500 2,000 2,500 2007 2008 2009 2010 2011 2012 Revenue (£ms)

Belgium Ireland UK

• Ireland revenue peaked at

€1,227m (£840m) in 2007. 2012 revenue €487m (£395m)

• 2012 UK revenue broadly

back to 2007 level (£1.335bn vs £1.353bn)

• Selco more than doubled

revenue over this period (£230m v £112m)

• 2012 Belgium revenue

€38m (£31m)

Group Operating Profit

180.4 92.7 21.3 41.5 47.5 59.1 8.2% 4.4% 1.2% 2.4% 2.7% 3.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 20 40 60 80 100 120 140 160 180 200 2007 2008 2009 2010 2011 2012 Operating Margin (%) Operating profit (£m’s)

• Group operating margin

peaked at 8.3% (2006)

• Operating margin gradually

rebuilt since 2009, largely through self help measures

ROCE / Capital Turn

2.0 1.8 1.5 1.6 1.7 1.8 16.1% 7.6% 1.8% 3.8% 4.6% 5.9% 0.0 0.5 1.0 1.5 2.0 2.5 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2007 2008 2009 2010 2011 2012 Capital Turn ROCE (%) Capital Turn ROCE

• Increasing focus

going forwards

• ROCE at 16.1% in

2007

• Gradual

improvement since 2009

Net Debt / Gearing

403.6 414.9 286.4 219.6 188.7 164.9 52% 50% 35% 26% 23% 20% 0% 10% 20% 30% 40% 50% 60% 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 2007 2008 2009 2010 2011 2012 Gearing (%) Net debt (£m’s)

• Significant reduction in

financial leverage

• Debt reduced by £250m
• ver 5 years
• No recourse to

shareholders

• Gearing 17% at June 2013

Dividend / Dividend Cover

15.1 11.9 4.5 6.0 6.5 6.9 3.8 2.1 1.1 2.6 2.1 2.3 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2 4 6 8 10 12 14 16 2007 2008 2009 2010 2011 2012 Dividend cover (x) Dividend (p)

• Dividends paid throughout

the recession

• Progressive dividend policy

to be maintained

• 2013 interim dividend

increased by 17%

Strategic Pillars

Economic Growth Organic Growth

Revenue Operating Margin Capital Turn

Grafton’s Strategic Pillars

Revenue Growth

Economic Growth Organic Growth Acquisitions Revenue

Greenfield New Formats Implants

Geography Added Value

• Exposure to early cycle upturn
• Multi-specialist
• Product extension
• Selco
• UK infill and consideration of further overseas

markets

• Extending capabilities

Economic Growth

Growth Points

Margin Growth

Operating Leverage Operating Margin Pricing Initiatives Mix Self Help (Part 2)

Pricing Consistency Customer Insight Benchmarking By Customer Product Implants Cost efficiencies Purchasing

• Across branches
• Sensitive and responsive to customer
• Good value, service-led proposition
• Driving higher margin business and core product

range

• Focus on highest returns
• Driving contribution to fixed cost
• Rich vein of opportunity
• Leveraging across the Group

Operating Leverage

Growth Points

• Inherent operating leverage across our brands

Increasing Capital Turn

Capital Turn Revenue Growth Property Working Capital Cash Collect Focus Optimise

Woodie’s Plumbase Belgium Selco Implants Showrooms

• Capital turn benefits from economic and organic

growth plus operating leverage

• Dedicated property team
• Maximising opportunities within the property

portfolio

• Progressively improve stock turn towards best in class
• Seasonal stock improvement opportunities
• Maximise terms from expanded footprint
• c.85% cash
• Greater proportion of our customers’ spend
• Supporting our trade customers with retail

proposition Revenue Growth

Growth Points

Revenue Growth

Revenue

Economic uplift

a a a a a a a a

Organic Growth Implants

a a a a

New Formats

a

Greenfield

a

Acquisitions Geography

a a

Added Value

a

Grafton NI Grafton RoI Belgium

• All brands early cycle beneficiaries
• Multi-specialist – Hirebase, Plumbase and Electricbase implants are key tools for driving revenue

growth

• Plumbase Industrial – new format, experienced team
• New sites and trial formats for Selco
• Selective M&A activity will increase market share of Buildbase and our Belgium business

Margin Growth

Operating Margin

Operating Leverage

a a a a a a a a

Pricing Initiatives Price consistency

a a a a a

Customer insight

a a a a a

Benchmarking

a a a a a a a a

Mix Business/product

a a a

By Customer

a a a a

Self Help Part 2 Implants

a a a a

Cost efficiency

a a a a a a a a

Purchasing

a a a a a a a a

Grafton NI Grafton RoI Belgium

• All brands benefit from operating leverage
• Pricing and mix improvements underpin gross margin opportunities
• Self Help Part 2 – Fundamental restructuring concluded but ongoing initiatives within brands and

across the Group

Increasing Capital Turn

Capital Turn

Revenue Growth

a a a a a a a a

Property Focus

a a a a a a a a

Optimise

a a a

Working Capital

a a a

Cash collect Selco

a

Implants

a a a

Showroom

a a

Grafton NI Grafton RoI Belgium

• Capital turn of all brands benefits from economic and organic growth plus operating leverage
• As at Dec 2012, freehold and long leasehold property totalled £375m plus £14m held for resale
• Specific targets for working capital reduction – opportunity to liberate cash/reinvest in core range

Financing Strategy

152 95 (30 June) 9 24 179 (30 June) 250

20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 Cash 2013 2014 2015 2016 2017+ £m

14 5

• Total Group debt facilities amount to £376m of which £74m was undrawn at

30 June 2013. Undrawn facilities increased to £117m in August 2013

• In August 2013 Ulster Bank’s £73m term facility extended out just over two years to 2016
• Weighted average maturity profile of three years – objective to extend maturity and diversify

funding sources

Eddie Kelly CEO Grafton Merchanting, RoI

Merchanting RoI

• Largest Builders Merchant
• Largest Plumbers Merchant
• Largest Steel Stockholder
• Largest Civils Merchant

Dublin Area

Chadwicks Clonmel

Chadwicks Naas

Irish Construction Industry

2007-2012

5 10 15 20 25 30 35 40 2007 2012

Billion € INDUSTRY VALUE €40B €8B

Irish Construction Industry

2007-2012

INDUSTRY VALUE

Billion € €40B €8B

1 2 3 4 5 6 7 8 9 2007 2012

Billion € PUBLIC CAPITAL SPEND €9B €3.9B

Builders’ / Plumbers’ Merchants in RoI

€270m €25m €30m €41m €50m

50 100 150 200 250 300

GMRoi Heat Merchants DPL McMahons Brooks

250 Independent Merchants operate on turnovers between €1m and €15m.

Merchanting RoI & the Recession

2007 2012

100 200 300 400 500 600 700 800

Sales €796m Sales €270m Costs €124m Costs €65m

Sales v Costs Sales v Costs

What have we done to improve

• ur bottom line?
• Cost control
• Costs reduced from €124m to €62m
• Payroll, bought-in services, rent
• Margin management
• IT tools
• Product mix
• Gap between Grafton and others 3 to 5 points
• Remodelled the business
• “Branch of the Future”
• Cash & Collect
• Training
• Purchasing policy
• Supplier consolidation
• Improved terms
• Cash management
• Stocks
• Debtors
• Cash sales

Customer Type

10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 CASH SALE SMALL/MEDIUM CONTRACTOR LARGE CONTRACTOR SELF-BUILD STEEL PLUMBING/HEATING CONTRACTOR HOUSE BUILDER OTHER DISTRUBITION CIVIL CONTRACTOR PUBLIC BODIES HIRE INTER-COMPANY

2012 - Sales by Customer Category

Product Mix

Ironmongery 9% Hire 2% Timber 18% Steel 10% Plumbing 24% General BM 37%

House Completions

Ireland 1990-2012 Current activity is at an unsustainably low level 25,000 completions is a more realistic level of activity

Outlook for Irish economy

• Recovering Market Conditions
• Housing
• RMI
• Demographics
• Min 25,000 units needed per annum
• Young population
• Government Stimulus
• RMI
• New business start-ups
• Foreign Investment
• Hotels
• Incomplete projects
• Food / Agri
• CAP changes in 2015

Outlook for Merchanting RoI

• Rebuilding Profitability
• Progress from 2010
• Further progress expected in 2014
• Increased Market-share
• Plumbing
• Geographical
• Maximising our strength
• Financial weakness of Independents
• Scale of Grafton v others

Selco video presentation

Joe Sowton Group Strategic Development Director

Our Strategy

• A focussed supplier of construction materials
• Active in the UK, Ireland and Belgium
• Our reputation is built on service
• Market leading positions
• To expand both organically and into new markets

What sets Grafton apart?

• We aim to lead not follow the market
• ‘Multi specialist’ stores
• Market leader in Ireland
• Selco – unique model
• Strong local management
• Group structure and disciplines
• High service levels

Grafton’s M&A track record

• Over 150 acquisitions since 1994
• Averaged over 10 acquisitions a year for 10 years
• Doubled in size every three years between 1997 & 2006
• Strong pipeline of potential targets
• Unique market positioning & development opportunity

GB market consolidation

Independents 70% Groups 30% Independents 30% Groups 70%

1994 (E) 2012 (E)

GB market has undergone a high degree of consolidation Further consolidation is anticipated Grafton is able to acquire without any significant competition issues

Effect of consolidation

• Rapid growth of largest Groups
• Modern efficient outlets
• IT transforms efficiency and communication
• Wider range of products and services
• Retail custom encouraged
• Industry professionalised
• Buying groups evolved

GB Merchanting

436 branches

Geographical reach 2012 market position

TP (Exc Wickes) 23% Wolsley 19% Jewson 18% GMGB 11%

Others 29%

2012 2014 expansion focus

Builders Merchanting No 3 Plumbers Merchanting No 4 2012 – 436 Branches

Source: Management data

GB Merchanting

focus on growth

Organic opportunities Implants

Over 200 potential UK locations 150 locations Project launched in 2014 Estate optimisation identified to deliver substantial additional sales over time generated through implants:- 2013 – 100 locations 2014 – 115 locations

Showrooms

2013 – 1st branch in Hayes 25 – 30 potential locations

GB Merchanting

focus on growth

Implants

DECORATING

IRONMONGERY

SHOWROOMS

GB Merchanting

Focus on growth Over 100 white gap opportunities

Acquisitions and green field sites

Trade cash & carry - 36 stores

SELCO

Focus on growth 36 BRANCHES

Considerable development potential £4.5 bn

• Est. 6%

Estimated market size

Source: Management estimate

Irish Merchanting

43 branches

Estimated 2012 market share

Heat Merchants 6% Dublin Providers 5% Grafton – Ireland Merchanting 36% (Min)

200+ Others 53%

Heat Merchants 6%

Geographical reach

Builders Merchanting No 1 Plumbers Merchanting No 1

Dublin Providers 5%

Irish Retail DIY

45 stores

Irish Retail DIY

2012 market share

Woodie’s +40%

B&Q 19% Homebase 12%

100+ Others 29%

Geographical reach

DIY Retailing No 1

Northern Irish Merchanting

15 branches

Estimated NI 2012 market share

GMNI 20% J P Corry 18% Haldane Fisher 14% Murdoch 14% Others 34%

2012 Potential

Geographical reach

EuroMix Dry Mortar

EuroMix

9 Dry Mortar Plants

2012 dry silo market share

EuroMix 50%

Tarmac 21% Cemex 15% Remix 12% Others 2%

2012

Geographical reach

UK Dry Mortar Manufacturing No 1

Where can we add value?

• Transferable skills & knowhow
• Synergies
• Experience of growth

Considerations and tests

 Ability to deliver shareholder value  Construction output  Market size: RMI housing & non-housing / commercial  GDP per capita & CAGR  Housing starts  Age of housing stock  Population trends  Unemployment trends  Ease of doing business  Risk analysis

Expansion into Belgium GRAFTON’S JOINT VENTURE WITH ROUSSEL NV - 2009

Why Belgium?

• Stable market €3 - €3.5bn
• Unconsolidated
• Underdeveloped
• Excellent quality sites
• Strong pipeline
• Ability to gain leading position

Belgian Market

20 40 60 80 100 120 140 €m

Estimated 2012 Turnover - Top 10 Belgian Merchants

75.5%

2012 Estimated Market Share

4.9% YouBuild & Mpro

The YouBuild Family

10 2 5 1 1

Builders Merchant Plumbers Merchant Ready Mix Concrete Tile Showroom Tile, Kitchen & Bathroom Showroom

• JV successfully repositioned in 2012
• Grafton now has control
• JV area redefined mainly within an area of West Flanders
• Family shareholders no longer operational management
• Supplier renegotiations successfully completed following exit

from buying group

• 2013 – introduced uniform IT platform across group
• Grafton at liberty to develop outside of the JV in Belgium

Belgian builders merchants

• pportunities

YouBuild Mpro

Mpro 25km catchment

BRUSSELS

Belgian builders merchanting

1st

4th

2012 2014

Summary

• Key focus on UK growth
• Well positioned in Ireland
• Significant progress in Belgium
• Potential to develop internationally

Gavin Slark Chief Executive Officer

Outlook and Summary

Outlook - UK

• Economy growing at moderate rate as recovery takes hold
• Clear signs that the housing market has strengthened
• Improving trend in housing transactions and mortgage approvals
• Economic and housing market backdrop supportive of increase in RMI

volumes in merchanting market

• Internal developments also providing a platform for growth
• Government help to buy measures will benefit the Group but we

anticipate a time delay

Outlook - Ireland

• Domestic economy starting to stabilise – after contracting for five years
• Downturn in housing construction bottoming out
• House price stabilisation expected to become more broadly based

geographically

• Housing transactions and mortgage approvals coming off a low base

Summary

• Grafton has managed the recession well
• Experienced Executive management team now in place
• Significant potential for organic growth
• UK acquisition opportunities
• Scope for further international development

Thank you for listening

Questions and answers